Monday, September 12, 2011

The finance ministry has rejected a suggestion of a government panel to grant stock options to top-level employees in state-run banks, saying that such an incentive could not be given until a wider assessment mechanism was put in place.

It, however, supported a proposal for a rural stint for newcomers. The committee, set up to look into human resource issues at state-run banks, had recommended that 15% of the performers could be given employee stock options. Headed by formerBank of Baroda chairman A K Khandelwal, the panel had suggested sweeping changes in changes in remuneration and employee-related practices "First we need to set up a mechanism to monitor the performance of employees across different banks and then make it an all-inclusive process before offeringESOPs," said a finance ministry official requesting anonymity. ESOPs, or employee stock options, grant the right, but not the obligation, to buy a certain amount of shares in the company at a predetermined price.

The committee, which submitted its report in June last year, said the boards of banks should set the wage and compensation structure in relation to profitability, productivity and the capacity to pay. But the government has decided to continue with industry-wide wage settlement brokered every five years by the Indian Banks Association, fearing a political backlash and opposition from trade unions.

The heads of some of the staterun banks ET spoke to expressed disappointment with the government's decision.

"At a time when attrition is high and is expected to grow further as private banks expand, letting remuneration be decided by trade unions is not a positive approach," said the chairman of a state-run bank. RBI governor D Subbarao, too, had said the compensation structure of public sector banks has to change if they have to compete with private banks.

The government is likely to come out with the final recommendations for changes in HR practices of banks in a fortnight. "The recommendations were discussed with the heads of various banks and, accordingly, an agreement was reached. There are many positives which have been retained," the ministry official said.

As per industry experts and various estimates by the Institute of Banking Personnel Selection, banks will have openings for over four lakh jobs as a large number of PSB employees are expected to retire in the next two years. Bankers feel that major issues have been ignored by the government and it has limited itself to a stop-gap arrangement.

Some of the recommendations that have been accepted include a three-year rural stint for all new employees. "The focus is on financial inclusion and this will further the cause," the official said.
The government has also approved of the succession planning approach as recommended by the committee, which favoured a common pool of general managers in the industry to be created for future executive directors or chairmen.

The government may also approve setting up of a Bankers' Leadership Development Institute on the lines of top-notch institutes such as the Indian Institutes of Management.